The large and unrelenting year-to-year growth in premiums (median increase of 14.6% a year among physician organizations in California) has led the Integrated Healthcare Association's multi-stakeholder group of health plans, purchasers, and physician organizations (POs) to replace their longstanding P4P program, which focused only on quality improvement, with a value-based purchasing (VBP) program that seeks to bend the cost curve and improve quality. The percent of revenue at risk will increase from the ~1% of capitation payment under P4P to ~8% of capitation payments under VBP. The program is slated to go into effect in 2013. Our study will evaluate the statewide IHA VBP plan, which has the potential to bend the cost curve, and will represent one of the largest VBP experiments in the U.S., targeting 200 POs that contract with six major health plans. By analyzing the behavioral response of POs to the new incentive structure, we will examine the critical national policy issue of whether, why, and under what circumstances VPB bends the cost curve. The outcomes we will evaluate longitudinally include changes in PO total costs of care (both cross-section and trend) and its component elements (pharmacy, ambulatory, hospital, and ancillary), quality performance, incentive payouts, and care delivery practices. Data for the project draws from multiple sources: total cost of care and quality performance data from IHA (derived from health plans and POs), incentive payments made to POs from health plans, and interview data that we collect from the POs. We will use statistical approaches to generate PO cost curves, investigate underlying cost drivers that explain various cost profiles, and examine PO behavioral responses to VBP that were associated with their ability to modify (or not modify) their cost trajectories ovr 4 years of exposure to the VBP. Cost curves provide information on cost levels as well as shape and orientation (i.e., trajectory), and we will track changes in PO cost curves over time.